If a lender will loan $180,000 on the home, then you have the OPTION of paying the $7,000 difference that the lender won’t cover. Keep in mind that you would still have closing costs.

Typically a tenant/buyer would not have the funds or would not be willing to pay so much money out-of-pocket to close on the home.

Extend Option Period

The following can and should be negotiated in the contract. If you qualify for a loan during the option period but the home is appraising for less than the agreed upon purchase price, you have the ability to extend the option period by a certain amount of time(usually 12-24 months).

Owner Reduces Price

Another possibility is the owner agrees to reduce the initial option amount to what the home is currently worth(appraisal amount).

But, don’t expect this to happen. This is NOT required of the seller so they would need to be highly motivated to sell the home to you and move on.

Seller Takes Home Back

This outcome is just as simple as it sounds. The seller can, and often times will, take the home back. In this case, you would lose all of the equity saved in the home.

If you are in a situation similar to this and the home appraises for less than the sales price then extending the option period would usually be your best outcome. Unless you no longer want the home. If that’s the case, then you have the option to move out out(depending on your agreements).

Keep This In Mind

Historically the housing market is going up each year. One of the MAJOR benefits of a rent to own is the possibility of building EQUITY without having the credit to qualify for a home loan.

For example if the $200,000 home you moved into is now worth $250,000. You still purchase the home at the original option price of $200,000.

So you have the $50,000 equity on top of your upfront option fee and rent credits!